Law of Loans and Mortgages

The law of loans and mortgages is specifically delineated.

  • When you contract a loan for a fixed term, then write it down.
  • A writer among you must write down the terms with fairness.
  • The writer must not refuse to write. Like Allah has taught him, he must write.
  • The writer taking down the dictation must do duty to God and not miss out on anything.
  • He against whom the obligation (= Borrower or debtor) is should dictate the terms.
  • The borrower dictating must do his duty to God and not miss out on anything from it.
  • If he against whom is the obligation is of poor understanding, or weak, or elderly, or unable to dictate himself, then his true friend should dictate the terms with fairness.
  • Get evidence of two of your men as the witnesses.
  • If two men are not around and available, then one man and two women that you agree upon from among the witnesses so that if one of the two errs or gets off the track or goes astray then one of them can remind by refreshing the memory of the other.
  • The witness must not refuse to be a witness or state the terms when called upon to testify.
  • Never be unwilling to write down all terms to the end whether loan is small or large.
  • For you all this is closer to God’s will, more equitable and more credible for evidence so that you are not close to having doubts and avoid developing doubts among you.
  • Exception to the rule of writing is a spot trade — immediate delivery of a product present for cash; in this situation it is no sin for you to not write it down.
  • Get witnesses whenever you trade.
  • The scribe or witness must not be harmed, hurt or injured.
  • If you do that then it is a disobedience with (= on the part of) you. And keep duty to Allah. Allah teaches you (these wise ways to loan and trade.). And Allah knows well everything. (002:283)
  • If traveling and can’t find a writer to write a mortgage) then a mortgage with possession.
  • If anyone entrusts any of his possession to another, then let him who was entrusted (= the trustee) return his trust (= the article pledged as security) and avoid angering God.
  • And do not conceal evidence; anyone who conceals it is an intentional sinner at heart.
  • And surely Allah knows all you do. (002:284)

The above rules lay the foundation of fairness in all financial dealings by stating in very simple terms how equitable loans and mortgages should be created. This site may add in future such interpretations, explanations and extrapolations as are deemed fit and follow the above rules. God in His Infinite Wisdom told his creature called Man what was good, fair, just and equitable in financial transactions but gave him the option to follow or flout His direction. Illustrated here is just one rule which has been violated resulting in catastrophic consequences in corrupting the economic systems around the world.

Nearly 59 years ago in Law College we were taught the 40 Principle of Equity in British Law. One of them was ‘A mortgage is a mortgage’ forever and the ‘Mortgagee has a right of redemption’. The American version of this equitable principal has twisted, distorted and distempered so badly that an entirely new meanings have been evolved as to what is ‘fair, just and proper’– which today in banking industry really means using every kind of cunning, conning and coercing technique for lender / mortgagee to squeeze out the last drop of a borrower’s financial blood. ‘Neither a lender nor a borrower be’ teachings of well-known religious order have been trampled over by lobbyist and legislator, judge and jury, adherents of their own faith. No wonder banking and capitalism culture by violating that one rule has led mankind to fall in a dismal abyss. Of many malpractices that have cropped up by flouting God’s rule of fairness and equity, here are 4 examples of just one evil practice carried out by small-time Mom-n-Pop individuals all the way to highly sophisticated banking operations.

I heard of a seller whose narration was tantamount to a boasting. He sold a rental home to a buyer for about $23,000.00, received down-payment of $2,300.00 (10%) and provided a seller financed mortgage of about $20,300.00. He received approximately $2,600 (11% of the original sale price) more in mortgage payments of a couple of hundred dollars each month. After about a year of making payments as the buyer didn’t / couldn’t / wouldn’t make payments, seller foreclosed on his mortgage and pushed the property into auction by Sheriff. Seller then bought the property for a song in the auction as its ‘the highest bidder’. Seller then obtained a deficiency-judgment — for the difference between the ‘unpaid balance on the mortgage’ and the ‘price he paid in auction purchase’. The deficiency judgment including costs of mortgage-foreclosure and property-auction exceeded $23,00.00. The seller had thus received (1) his property back, (2) about $4,900.00 (21% of the price) in cash and (3) a right to collect on a judgment of over $23,000.00 for which he had sold the house initially. All that was in accordance with the law and through no abuse of judicial process – albeit appalling, inherently unfair and far from an equitable conclusion of an unfortunate situation. I construed it to be a rare case of a sharp seller, or poor buyer, or unfortunate episode.

Then another repetition of the same scenario came to my notice. A seller sold his house for about $140,000.00 with a seller-financed mortgage. Similarly secured foreclosure was followed by getting the house back in auction and then obtaining a deficiency judgment. The scheme had netted the seller (1) the return of his house, (2) mortgage payments of about 20,000, and (3) a deficiency judgment on which he extracted another $25,000.00 in monthly payments. This second instance supporting an inherently inequitable and unfair conclusion of a mortgage added to my education and led me to conclude that this was the norm to legally punish careless buyers.

Then a motel operating a name-brand international franchise was offered by a bank for $3,000.000.00 dollars with a down payment of $300,000.00 (10% of price) and a seller-financed mortgage. Represented as a sweet deal was about 100-rooms which at 50%-occupancy rate and average room cost of about $60.00 per night was producing nearly $3,000.00 daily or $$90,000.00 monthly income. The seller-bank wanted mortgage payments of just $30,000.00 monthly. Only after due diligence it transpired that the bank had sold, foreclosed and took back the property many times before in a few years selling it for about $1.3 million, then $1.7 million, then near 2 million, and this time $3 million. Who knows how many more victims of the bank-held deficiency-judgments were there? The property kept appearing boarded up for a few years after that. Violating universal laws which in religious sectors are termed as divine rules showed a consistent ending.

A Pennsylvania Court documents indicate a developer bought a lake property, sub-divided the land into lots to build luxury homes and sunk considerable money in putting in the roads and sewer lines. He built a couple of homes which were unsold in the 1980’s economic doldrums and the bank pulled the rug from under him. The lake development became a REO (real estate owned by a bank). Bank then sold the property to another builder and sometime later foreclosed on him. Bank then ‘milked’ other builders one after the other for a few more times and established a cash-flow by selling, financing, foreclosing and obtaining deficiency judgments. Bank took full advantage of the law and practice by using its REO as a lure to catch fish after fish many times. The last builder who bought from the bank after a foreclosure ended up losing in deficiency judgment his nearly 16 million-dollar estate consisting of his home, office building and a thriving business. He emerging from total financial ruin and bankruptcy sued the bank on the grounds of its pattern of bad-faith sales, fraudulent foreclosures and routine deficiency judgments. Even if the plaintiff builder won to a small degree, the case highlights the methodology which many small to medium-size operators practice. Even if the bank went under at a later date, its officials probably moved to other outfits to continue the same nefarious activity. After all many parts of the economic system are approved and recognized by the man-made common law – even if those parts run counter to God’s law of fairness and equity.

All above examples show that seller and not the borrower dictated the terms of the loans by means of forms prepared by Attorneys paid by sellers. They also highlight that mortgagee is in full control and mortgagor neither enjoyed the protection of ‘A mortgage is a mortgage’ nor that of any Right of Redemption. In all fairness it must be stated that several state statutes specify redemption rights subject to certain time and other restraints. Also reverse mortgages lately touted in several jurisdictions give mortgagor the protection of a virtually perpetual mortgage and protect mortgagee investment at the time of mortgagor’s death. And there we enter in the field of Law of Inheritance under which all loans and assets, rights and obligations of a decedent are liquidated and distributed immediately on his death and are not eroded by estate-devouring techniques or lingering delays of probate proceedings for years which the economy has coined and jurists have upheld. And then Law of Evidence, Law of Judges and Law of Fairness and laws governing several others areas also apply.

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